How to Survive a Bear Market
Given recent events in the cryptocurrency market, we thought it was important to offer our take on how to survive a bear market. Cryptocurrencies are a long-term game, disguised by short-term volatility. This makes the ability to stick around for longer than anybody else a major advantage. As they say, “the market can stay irrational longer than you can stay solvent.” So, turn down that leverage slider, close your charts and huddle in as we offer you some tips and tricks you can use to stay afloat and stay sane.
First and foremost, this should not be misconstrued as investment advice. All investments — and cryptocurrency especially — entail risk. Please consult with a financial advisor before making any investment decisions. Now that we have that out of the way, if you have been living under a rock recently, we will briefly describe what happened.
Luna and TerraUSD (UST) are a two-token stablecoin system that slightly differs from others in that Luna is its own layer one blockchain, and that the mechanisms to retain the UST peg are not entirely smart contract based — there is also the Luna Foundation Guard. Long story short, like almost all other two-token stablecoin systems before it, and despite these differences, UST depegged. Because UST depegged, this sent LUNA into a downward death spiral where a massive amount of LUNA were minted due to the fact that UST can always be redeemed for $1 of LUNA — regardless of the price of UST. This wiped out $40B and led to immense panic across the entire market, leading to major losses in other coins as well. Now, at the end of it, we find ourselves in the midst of a bear market with a macroeconomic landscape that is not exactly friendly to risk assets. So, what do you do now?
First — condolences if you had any exposure to LUNA or UST. While what happened to UST did have historical precedent given the way the system was designed, that doesn’t change the very real impact that its collapse has had on the lives of many. While condolences in an article may not make you back what you lost, it does bring us to our first tip to survive a bear market: maintaining your mental health. Trading is a mental game. While you are of course pitted up against the entire rest of the market, the bigger adversary is oneself. In this light, it is extremely important that you maintain your mental health. Find something that you enjoy doing that doesn’t involve looking at charts, trading, or contemplating losses that you may have incurred. Whether it is a hobby, exercise, spending time with family, or any number of other activities, it is important to give yourself a mental break — especially when staring at the chart for one more hour isn’t going to flip the trend of the global economy. It is similarly important not to dwell on the past and to find resolve in the fact that you cannot change it — but rather you can only change your actions moving forwards.
This brings us to our second tip. If you have any exposure to two-token algorithmic stablecoin systems — even if they are trading at their peg — it would be wise to evaluate all of the risks that are present in these systems and determine if a depeg and death spiral would affect you negatively. If so, it would probably be best to choose another stablecoin. Given that trust is at a pretty high premium right now, maybe you don’t trust any stablecoins and would prefer to own only trustless mainnet tokens. That’s fine too — there are ways to create synthetic exposure to the local fiat currency of your choice, one of which Arthur Hayes describes in this article. The fact of the matter is that you are not going to be able to survive a bear market if your funds are in a stablecoin that you think is safe, but really isn’t.
This brings us to our third tip on how to survive a bear market: research. While it is undeniably less exciting to watch prices go down, bear markets create tremendous opportunities. While prices are rising, it may seem like there isn’t enough time to do full research on the projects that you would like to be involved in. Maybe somebody on Twitter described it well, or there is a thriving Discord community, so you skip over the research phase. Not the case in a bear market. If bear markets afford us one thing, that would be time — time to properly evaluate different projects by reading whitepapers, becoming familiar with how all of the mechanics work and listening to interviews with the founders. Bear markets also give us time to plan out what price we would like to purchase an asset at. You can rest assured that you are not going to miss out on generational wealth if you have been doing due diligence on a project, have formed a thesis, but miss out on the absolute bottom by a few percentage points because you were being patient. Chances are that having done all of that research beforehand will allow you to have the conviction to actually hold the position, rather than having entered it simply because the price is low.
If you have made it this far, congratulations. Many people who are involved in cryptocurrency only for a quick buck would have simply left the space by now — and many still are. Times are admittedly tough, though nothing about the underlying societal trends that brought us to this point in the first place have changed. Cryptocurrency builders and dev teams will continue to build. Cryptocurrencies are unique in this way; oftentimes the fundamental picture actually improves the most while prices are suppressed. It is with this knowledge that we believe that the disconnect between the ravenous appetite for innovation in our space and the downward price pressure of the bear market cannot last forever.
In times like these more than ever, it is important to remember: “we are all going to make it”.